Unless your customers order the same quantities every month, you’re probably familiar with tsunamis in demand – unexpected peaks in orders. But actually, when you have the right monitoring tools, you can see tsunamis coming in advance.
If you only look 2 to 3 months ahead, you won’t have time to source an extra container in China or to structurally hire and train new employees. If you prolong your planning horizon to 12 to 18 months, however, you will be able to take a proactive approach. And that’s exact what rough cut capacity planning, as an intermediary planning tool between the budget plan and the master production schedule (MPS), enables you to do.
A cultural battle
An unplanned 30% increase in demand cannot possibly be covered by the existing production staff. In the best case, with the maximum joint effort, they can cope with 15% of the extra demand. Furthermore, rescheduling the production planning at very short notice makes it impossible to produce in the most optimal sequence. This leads to extra operational costs, service issues and unhappy customers. Having said that, working hard in pursuit of a common goal can give people a sense of satisfaction, even if it does leave operational chaos behind. Some companies simply enjoy firefighting – honestly! But implementing rough cut capacity planning (RCCP) allows you to take better account of the possibility of resistance so you can proactively and clearly communicate the main objectives.
Tackling capacity issues
RCCP reduces the firefighting significantly by tackling capacity issues beforehand. There are several ways to do so. One of the most common approaches is to raise or lower the stock level prior to an increase or decrease in demand. However, the economic crisis has led to increased pressure on the capital tied up in stock. As a result, various alternative methods are gaining in popularity, such as outsourcing part of the production. Other possible solutions are to increase capacity by planning extra shifts, by offloading demand to an alternative production site or by delivering from another distribution centre. The RCCP technique will only suggest reducing demand as a very last resort.
Rough Cut Capacity Planning essentials
Now it’s clear why rough cut capacity planning is necessary and how it limits the need for firefighting, let’s go deeper into what RCCP actually entails. Firstly, we would like to remind you that the overall goal of RCCP is to define a realistic, cost-efficient and viable tactical plan. This plan allows you to identify bottlenecks and to seek appropriate solutions.
To simplify the gathering and processing of information, the data is typically at an intermediate aggregation level, e.g. the combination of product group or research group per production plant. And whereas the budget has a planning horizon of 1 year and the master production schedule looks 8 to 12 weeks ahead, RCCP has a 12 to 18-month horizon broken down into monthly time buckets.
In many companies the tactical planning process is driven by the Supply Chain department, based on the Supply, Inventory & Operations Planning (SiOP) forecast. The budget plan is driven by Finance and the MPS is the responsibility of Production. The need to act in order to meet a rising or falling demand may conflict with the budget plan. Differences should be discussed in the demand review and monthly SiOP meetings. Typically, RCCP allows analysis of several demand scenarios.
Better TCO, better service
By starting the discussion about the necessary capacity earlier on in the planning process, RCCP allows you to better anticipate changes in demand. As a result, you’ll stay in control of costs and you’ll be able to provide better customer service with lower inventories. After all, that’s the main objective of every supply chain manager.